The claimant applied for Social Security disability benefits and was
found disabled beginning August 20, 1984. However, his Social Security
disability benefits were offset and reduced to zero because he also
received a public disability payment from the Colorado Public Employees'
Retirement Association. The offset was made because the amount he received
in Social Security disability benefits and payments from the Public
Employees' Retirement Association exceeded 80 percent of his "average
current earnings" as defined in the Social Security Act.

The claimant appealed this reduction in his benefit and argued that
noncovered wages from his employment with the State of Colorado should be
used to calculate his "average current earnings." He also argued that his
State disability payments were not subject to offset because Colorado law
provided for a "reverse offset" (offset of the State payment due to the
receipt of Social Security disability benefits that precludes offset of
the Social Security benefit) and because his State disability payment was
a private, not public, disability payment.

The administrative law judge (ALJ) decided that the claimant's wages from
the State of Colorado were not covered under Social Security and,
therefore, could not be included in the calculation of his "average
current earnings." The ALJ also held that Colorado law did not provide for
a "reverse offset" for the Public Employees' Retirement Association
disability payment because there was no reduction in the State disability
payments due to the receipt of Social Security disability benefits. (The
ALJ recognized that the State of Colorado does have a "reverse offset"
plan for its workers' compensation payments, which are completely separate
from the disability payment the plaintiff received.) And, finally, the ALJ
decided that the State disability payment received by the claimant is paid
pursuant to the laws of the State of Colorado and is, therefore, a public,
not private, disability payment subject to offset.

The sole issue here is whether Social Security disability benefits were
properly reduced or offset.

On August 31, 1984, the claimant applied for disability insurance
benefits. On October 17, 1984, the claimant was found "disabled" with an
onset date or August 21, 1984. The claimant's Social Security award letter
stated that after a 5-month waiting period his monthly benefit was
$568.60. His total family benefit amount was $852.90. Effective October
1984, the claimant began receiving $873.63 in disability payments from the
State of Colorado because he had worked as a tax auditor for the State
from March 1977 to August 21, 1984.

A hearing was held on August 20, 1985. The claimant testified that he was
employed as a public employee in a political subdivision of the State of
Colorado until August 20, 1984, and had stopped paying into Social
Security around 1976-1977. He believed that 42 U.S.C. 424a(d) prohibited
the Social Security Administration from making an offset from any benefits
received from the State of Colorado. The claimant also argued that his
"average current monthly earnings" were improperly calculated because his
1983 earnings from the State of Colorado should have been the basis on
which to calculate his "average current earnings."

The 1981 Omnibus Budget Reconciliation Act, as incorporated in section
224 of the Social Security Act, provided for the reduction, but not below
zero, of Social Security disability benefits payable after August 1981 to
individuals who are also receiving disability benefits provided by
Federal, State, or local governments (with certain exceptions). The
reduction or offset is made in the Social Security disability benefit in
the event the total benefits paid under the two disability programs exceed
80 percent of the worker's average monthly earnings (called "average
current earnings") prior to the onset of disability. The purpose of this
legislative change was to eliminate duplicate benefits that overcompensate
some disabled workers, thereby discouraging them from attempting after-tax
income as the result of public disability programs than they earned when
they were working.

The claimant's average monthly earnings were calculated using the
claimant's monthly earnings in his highest consecutive 5 years of earnings
covered by Social Security (years 1972 through 1976). The result of this
calculation, with the 80 percent limit imposed, was $852.00.

The claimant asserted that the calculation of his average monthly
earnings was incorrect. He argued that his State of Colorado employment
prior to his determination of disability should have been used. 20 CFR
404.408)c)(3) defines "average current earnings" and directs how the same
will be derived for purposes of applying a reduction in
benefits.[1] More specifically,
20 CFR 404.211(b) provide that the methods to either determine average
indexed monthly earnings or average monthly wages for purposes of
computing a Social Security disability benefit will use earnings
creditable to the claimant for Social Security purposes after 1950.
Since the claimant's earnings while he was employed with the State of
Colorado were not creditable to his Social Security earnings
record, his earnings from his State employment could not be used.

Service in the employ of a State, or any political subdivision thereof,
or any instrumentality that is wholly owned by one or more States or
political subdivisions, is excluded from Social Security coverage.
However, Section 218(a) of the Social Security Act (the Act) provides for
voluntary agreements for coverage of most employees of State and a local
governments.[2] All the States
have entered into agreements, some having provided coverage for most
employees and some having provided coverage for most employees and some
having provided coverage for only a few employees. The claimant's specific
employment for the State of Colorado was not a part of a "coverage group"
as provided in Sections 218(b) and (c)(4) of the Act.

In his second argument, the claimant cited 42 U.S.C. 424a(d) as authority
that no offset would apply to the disability payments provided by the
State of Colorado. That section provides that an offset shall not apply if
a State law or plan provided on February 18, 1981, for a reduction in the
amount of the State disability payment if the claimant also receives a
Social Security disability benefit (called a "reverse offset" law or
plan). Colorado does not have such a "reverse offset" law or plan applying
to State disability payments. Therefore, the exception in 42 U.S.C.
424a(d) does not apply in this case. And, finally, since the State
disability payment received by the claimant is paid pursuant to the laws
of the State of Colorado, it is a public, not private, disability payment
subject to offset.

In applying applicable law to the claimant's case, the maximum monthly
limit for his combined Social Security disability benefit and State
disability payment, for purposes of computing the reduction in his Social
Security benefit, is 80 percent of his average monthly earnings under
covered employment, or $852.00. Since the total of his State disability
payment ($873.63) and unreduced Social Security disability benefit
($852.90) equals $1,726.53, his family Social Security disability benefit
must be reduced by $852.90 to a benefit amount of zero. That leave the
claimant with the receipt of $873.63 in State disability payments per
month. The application of an offset or reduction fulfills the intent of
the new law that the claimant not be overcompensated.

However, should the claimant's State disability payments ever stop, his
Social Security disability benefit would resume. Moreover, if and when the
claimant reached age 65, the calculation of his Social Security retirement
benefit will take into account his period of disability granted since
August 21, 1984, even though benefits actually received were reduced to
zero. At that time, his retirement benefit will be substantially higher
than if had not been found disabled and was able to continue in his
noncovered employment with the State of Colorado.

Accordingly, the reduction or offset of benefits in this case is found to
have been justified and
correct.[3]

[1] Section 224(a) of the Act,
which 20 CFR 404.408(c)(3) implements, provides that "average current
earnings" are computed by reference to average monthly wage under section
215(b) of the Act or to wage and self-employment income totals referencing
sections 209(a)(1) and 211(b)(1) of the Act. These statutory provisions
are concerned strictly with wages and self-employment income derived from
employment and self-employment covered by Social Security.

[2] Effective for services
performed after July 1, 1991, with a few exceptions, service in the employ
of a State, any political subdivision thereof, or any instrumentality of
the State or political subdivision wholly owned thereby, by an individual
who is not a member of a retirement system of such State, political
subdivision, or instrumentality is mandatorily covered for Social Security
purposes under section 210(a)(7)(F) of the Act.

[3] The claimant subsequently
sought review of the Secretary's final decision in the United States
District Court for the District of Colorado,. On October 8, 1`986, that
court upheld the Secretary's decision. The claimant appealed the district
court's decision to the United States Court of Appeals for the Tenth
Circuit which, on November 4, 1987, affirmed the district court's decision
in favor of the Secretary.

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